Cigarette Marketing Increased 85 Percent In Four Years After 1998 Tobacco Settlement, New FTC Report Shows

Washington, DC — The major cigarette companies increased their marketing expenditures to a record $12.5 billion – $34.2 million a day – in 2002, according to the annual Federal Trade Commission report on cigarette marketing and sales released today. This represents a one-year increase of 11 percent from the $11.2 billion spent in 2001 and an 85 percent increase in the four years after the tobacco companies agreed to curtail some aspects of their marketing as part of the November 1998 legal settlement with the states.

This report contradicts the tobacco companies’ claims, repeated during their recent opening arguments in the federal government’s tobacco lawsuit, that they have made “profound and permanent” changes in their marketing since the 1998 settlement. While the settlement restricted some forms of cigarette marketing effective at reaching kids, such as billboards and event sponsorships, the tobacco companies have simply shifted their resources and increased spending in other ways that appeal to kids, especially price discounts that make cigarettes more affordable to kids and high-visibility store displays.

The new FTC report shows that 63.2 percent of cigarette marketing in 2002, or $7.9 billion, was spent on price discounts paid to cigarette retailers or wholesalers in order to reduce the price of cigarettes to consumers. The tobacco companies spent another $1.06 billion, or 8.5 percent of their total marketing, on promotions involving free cigarettes. These price discounts and free cigarettes represent an aggressive effort by the tobacco companies to undermine state cigarette tax increases and make cigarettes more affordable to kids, who are their most price-sensitive customers. In 2002, 21 states – the most ever in a single year – increased cigarette taxes. The tobacco companies are well aware that studies show every 10 percent increase in the price of cigarettes reduces youth smoking rates by about seven percent and overall cigarette consumption by about four percent. The fact that the tobacco companies acted so aggressively to undermine the public health benefits of cigarette tax increases shows that they cannot be taken seriously when they say they do not want kids to smoke. States should respond by further increasing taxes on cigarettes in order to counter price discounts and reduce their appeal to children. Voters in Colorado, Montana and Oklahoma can take immediate action by approving the initiatives on the November 2 ballot to increase tobacco taxes in those states.

In addition to increasing their tobacco taxes, states must also allocate more of their tobacco settlement and tobacco tax revenues to tobacco prevention programs that can counter the industry’s aggressive marketing. In Fiscal Year 2004, the states cumulatively have allocated $541.1 million for tobacco prevention programs, which amounts to just four percent of cigarette marketing expenditures as reported today by the FTC. In fact, the tobacco companies spend more to market cigarettes in a single day ($34.2 million) than all but four states (California, Pennsylvania, Ohio and New York) currently spend in an entire year on tobacco prevention. It is unconscionable that the states have been cutting back on programs proven to protect our kids from tobacco addiction at the same time that the tobacco industry is spending record amounts to market its deadly products. The states collect nearly $20 billion a year in revenue from tobacco taxes and the tobacco settlement. It would take only about eight percent of this revenue for every state to fund tobacco prevention programs at the minimum levels recommended by the U.S. Centers for Disease Control and Prevention.

Today’s report also underscores the significance of Congress’ failure this year to enact legislation granting the U.S. Food and Drug Administration authority to regulate tobacco products. Among other things, this legislation would have given the FDA the authority to restrict tobacco marketing to the extent permitted by the First Amendment, including especially marketing that impacts kids. Until Congress grants the FDA this authority, the tobacco companies will face only minimal restrictions on their ability to engage in marketing that impacts our children.

After price discounts, the second largest category of marketing expenditures was promotional allowances, which includes payments to retailers for displaying and merchandising cigarette brands in stores. Altogether, price discounts and promotional allowances account for $9.66 billion, or 77.5, percent of tobacco marketing expenditures in 2002, underscoring the fact that the tobacco industry is focusing more and more of its marketing on retail stores. Store-level marketing is a highly effective way of reaching teenagers as studies show three out of four teens shop at a convenience store at least once a week.

Tobacco use is the leading preventable cause of death in the U.S., killing more than 400,000 people and costing the nation more than $75 billion in health care bills every year. Every day, another 2,000 kids become daily, regular smokers, one-third of whom will die prematurely as a result. Today’s FTC report makes it clear that the tobacco industry has not changed and remains a major cause of the problem. Congress and state legislatures must act to protect our kids and reduce the terrible toll of tobacco.